CD Beneficiary Terms–What you need to know:
Some investors may purchase CDs so that those that they love can be provided for after they die. It is common for certificate of deposit investors to set up beneficiaries on their accounts. CDs provide financial stability for the beneficiary that they may not have been able to give themselves. More and more people are setting up their CD accounts with beneficiaries. Setting up beneficiaries assures investors that their money is delegated as they wish after they are gone or when they are unable to care for themselves.
Importance of Selecting a Beneficiary When Opening a Certificate of Deposit CD
Investors who set up CD accounts should seriously consider adding a beneficiary to their accounts. It may not seem like a good idea now, but this information could not be further from the truth. It is important that this information is set up in case of death or declaration of mental incompetence. Either situation can strike at any point in time. It really doesn’t matter how old investors are because both of these situations can happen to people of any age.
It is important for investor to select a beneficiary for the CD accounts. The person named on the account can be added before the CDs are opened or once the CDs are opened. The investor must choose the “payable on death CD option” for their CDs. This entitles the person who is named on the account to own the CDs upon the investors’ death. They can withdraw the CDs, roll them over, or reinvest. The choice is up the beneficiary. They are the legal owners of the accounts once the owners die.
It is also important for investors to declare a beneficiary in the event that they are declared mentally incompetent. If the owners of the CDs are no longer able to handle their financial affairs, the beneficiary has exclusive rights to handle their accounts. Having a beneficiary in place can prevent nasty family disputes for the investors’ money.
Tips on Choosing a Beneficiary for a Certificate of Deposit CD
- Choose the cd beneficiary at the time the account is opened. Do not wait until old age or mental problems set in to name a beneficiary. Even if investors are very young, they should select a beneficiary for their CD accounts. If investors are declared mental incompetent before death, the names on the CD accounts supersede the names on the wills. Naming a beneficiary when the account is opened prevents legal battles for the inheritance.
- Do not choose a beneficiary in the middle of CD terms. Choosing a beneficiary in the middle of CD terms may be very costly to the investment. Many banks require that investors close the accounts before naming a beneficiary or changing the beneficiary. Investors may be forces to close the accounts and suffer the high early withdrawal fees that the issuers charge. Investors may lose a great deal of their investments, depending of the withdrawal fees. Investors will have to open the account with new terms and interest rates. If investors had a high interest rate before the account closes, they may have to choose from lower interest rates if the market rates are lower. Going from a 5% interest rate to a 2% interest rate may cost investors a large amount of future interest.
- Investors should consider changing beneficiaries at maturity. If investors decide that they want another person to have their money once they die, or they want another person to handle their money if they are declared mentally incompetent, investors should change the information at maturity. This decision will prevent the need to close the accounts, encountering hefty early withdrawal fees, and receiving lower interest rates.
- Investors should choose a responsible beneficiary. In the event of death, investors should choose someone who they trust with their money. In the event the investors are rendered mentally incompetent, they should select someone who is very responsible. This person should be able to handle their accounts as well as they do. Some investors depend on the proceeds from the interest earned on their CDs as current cash flow to maintain their lives. If the beneficiary is not a responsible person, they may waste the money that investors have worked so hard to build. Good beneficiaries to choose are guardians or the person in which investors give power of attorney.
When investors open CD accounts, they have a greater amount of responsibilities to think about than just their money. They must also decide whom they want to leave in charge of their money in case of death of mental incompetence. When investors decide on their beneficiary makes a huge difference in how much money the CDs earn over the course of the terms.